Next-Gen

Savings

In Glogpedia

by alebee20
Last updated 4 years ago

Discipline:
Social Studies
Subject:
Economics
Grade:
12

Test Glog

What is Savings? The portion of disposable income not spent on consumption of consumer goods but accumulated or invested directly in capital equipment or in paying off a home mortgage, or indirectly through purchase of securities.

Savings

AnnutiySeries of payments at fixed intervals, guaranteed for a fixed number of years or the lifetime of one or more individuals. Similar to a pension, the money is paid out of an investment contract under which the annuitant deposit certain sums with an annuity guarantor, usually a government agency or an insurance firm. The amount paid back includes principal and interest, either or both of which may be tax exempt. An annuity is not an insurance policy but a tax-shelter.

401kA defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes, and in some cases employers will match their contribution dollar-for-dollar. Taking a distribution of the funds before a certain specified age will trigger a penalty tax. The name 401(k) comes from the IRS section describing the program.

Why do we need savings?Savings can be essential and a very well use of investment with money since emergencies do not wait. By having money on the side it helps get out of those type of situations and it also helps create an account for the future when one is not in the work force anymore, being able to sustain themselves on their own.

Retirement plan A plan established by employers under the requirements set forth in Section 401(a) and 403(a) of the Internal Revenue Code for the benefit of their employees who want to save for retirement. Plans that meet the requirements receive favorable tax treatment on behalf of the employer and the plan participants, such as the tax deductibility of contributions and tax deferral on earnings in the plan.

403B A retirement plan similar to a 401(k) plan, but one which is offered by non-profit organizations, such as universities and some charitable organizations, rather than corporations. There are several advantages to 403(b) plans: contributions lower taxable income, larger contributions can be made to the account, earnings can grow tax-deferred, and some plans allow loans. Contributions can grow tax-deferred until withdrawal at which time the money is taxed as ordinary income (which is sometimes a disadvantage)

Social Security A general term used to refer to the programs mandated by the Social Security Act of 1935. With the amendments made to the act since then, it is now sometimes called Old Age, Survivors, Disability, and Health Insurance. Through social security, programs that provide assistance to certain segmentds of the public are administrated, such as Public Assistance.

Pension Post-retirement benefits that an employee might receive from some employers. A pension is essentially compensation received by the employee after he/she has retired.

Money Market Market for short-term debt securities, such as banker's acceptances, commercial paper, repos, negotiable certificates of deposit, and Treasury Bills with a maturity of one year or less and often 30 days or less. Money market securities are generally very safe investments which return a relatively low interest rate that is most appropriate for temporary cash storage or short-term time horizons. Bid and ask spreads are relatively small due to the large size and high liquidity of the market.

IRA vs. Roth IRAIRA: Tax-deferred retirement schemes that can be started by anyone who earns employment income. Individuals who earn less than a certain amount (or who do not participate in their employer's retirement plan) can generally deduct a part or all of their contribution to such schemes from their taxable income. Money in an IRA is taxed only when it is withdrwn Roth IRA: A tax-qualified savings account for individuals that allows the account holder to set aside money for retirement. A Roth IRA differs from a traditional IRA in that the contributions to a Roth IRA account are fully taxable at the time they are deposited and that both the principal and the income earned in the account are tax-free when they are withdrawn as distributions. See Individual Retirement Arrangement (IRA).


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